How are ETFs created and redeemed?

ETF shares are created and redeemed mainly by large institutions called authorized participants. They can deliver a basket of securities to the ETF in exchange for new ETF shares, or return ETF shares and receive a basket of securities.

This process is usually done in large blocks and often "in kind" (securities, not cash). It helps the market keep the ETF price close to the value of the holdings because it enables arbitrage when prices drift.

Most investors never interact with this mechanism directly, but it's one reason ETFs can stay liquid and track their underlying exposure closely. When markets are stressed or underlying assets are illiquid, that's when the mechanism can be tested and premiums/discounts can widen.